Problem 13-7 Calculating Returns and Standard Deviations (LO1)Consider the following information:Probability of State ofState of EconomyStock ARate of Return if State OccursStock BEconomyRecessionNormal0.150.11- 0.240.550.16Boom0.300.240.190.22Calculate the expected return for each stock. (Do not round intermediate calculations. Round the final answers to 2 decimalplaces.)Expected returnStock AStock B%% Calculate the standard deviation for each stock. (Do not round intermediate calculations. Round the final answers to 2 decimalplaces.)StandarddeviationStock A%Stock B%

Given Data: Rate of Return if State OccursState of EconomyProbability of State of EconomyStock…

Answered: Problem 13-7 Calculating Returns and…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Part a only
State of Economy Probability of State of Economy Rate of Return if State Occurs Stock A Stock B Recession .15 .04 −.17 Normal .55 .09 .12 Boom .30 .17 .27 a. Calculate the expected return for Stocks A and B. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the standard deviation for Stocks A and B. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
You are given the following information: State ofEconomy Return onStock A Return onStock B Bear .112 −.055 Normal .105 .158 Bull .083 .243 Assume each state of the economy is equally likely to happen. a. Calculate the expected return of each stock. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the standard deviation of each stock. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the covariance between the returns of the two stocks? (A negative answer should be indicated by a minus sign, Do not round intermediate calculations and round your answer to 6 decimal places, e.g., .161616.) d. What is the correlation between the returns of the two stocks? (A negative answer should be indicated by a minus sign, Do not round intermediate calculations and round your answer to 4…
I1 12 1 3 1 4 15 '7 1 8 1 9 1 10 1 11 I 12 1 13 1 14 I · 15 9 1 1. 1. Based on the following information Calculate State of Economy Probability of State of Economy Rate of Return if State Occurs Stock A Stock B Recession 0.20 0.05 -0.17 Normal 0.55 0.08 0.12 Boom 0.25 0.13 a) The expected return of Stock A b) The expected return of Stock B c) The expected return of Portfolio where you invest $35,000 in Stock A and $45,000 in Stock B d) Suppose Stock A has a beta of 0.8 and Stock B has a beta of 1.3. If you invest $35,000 in Stock and $45,000 in Stock B, what is the beta of this portfolio? e) Expected return on the market (R) is 10% and the risk-free (r.) is 4%. What must the the expected return on the portfolio according to CAPM? (Use the beta you have calculated in sectic for CAPM)
am. 134.
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Expected return
Consider the following information: Rate of Return if State Occurs State of Economy Probability of State of Economy Stock A Stock B Recession 21 .06 21 Normal 58 109 08 Boom 21 14 25 a. Calculate the expected return for Stocks A and B. (Do not round Intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the standard deviation for Stocks A and B. (Do not round Intermedlate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) a. Stock A expected return a. Stock B expected return b. Stock A standard deviation b. Stock B standard deviation 196 96 96 %
Based on the following information: State of Economy Probability of State of Economy Return on Stock J Return on Stock K Bear .20 -.030.024 Normal .55.128.052 Bull .25 .208.082 a. Calculate the expected return for each of the stocks. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the standard deviation for each of the stocks. ( Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g , 32.16.) c. What is the covariance between the returns of the two stocks? (Do not round intermediate calculations and round your answer to 6 decimal places, e.g., .161616.) d. What is the correlation between the returns of the two stocks? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., .1616.)
5 Consider the following information: Probability of Rate of Return if State Occurs Economy Recession State of Economy Stock A Stock B .22 .045 -.42 Normal Boom .62 .16 .125 .32 .310 .55 a. Calculate the expected return for the two stocks. Note: Do not round Intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. b. Calculate the standard deviation for the two stocks. Note: Do not round Intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. Expected return of A Expected return of B b. Standard deviation of A Standard deviation of B 96 96 96 96
Intro We know the following expected returns for stocks A and B, given different states of the economy: State (s) Probability E(rA.s) E(rB,s) -0.1 0.04 0.08 0.05 0.13 0.07 Recession 0.2 Normal 0.5 Expansion 0.3 Part 1 What is the expected return for stock A? 3+ decimals Submit
Problem 13-28 SML (LO1, 4) Suppose you observe the following situation: Probability of State 0.15 0.60 0.25 State of Economy Recession Normal Irrational exuberance Stock A Stock B Rate of Return if State Occurs Stock B Stock A % -0.14 0.07 0.42 a. Calculate the expected return on each stock. (Round the final answers to 2 decimal places.) Expected Return % % -0.12 0.07 0.22 b. Assuming the capital asset pricing model holds and stock A's beta is greater than stock B's beta by 0.65, what is the expected market risk premium? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Expected market risk premium

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